GBP/USD licks BOE’s Bailey-led wounds near 1.3900 ahead of FOMC

GBP/USD retreats to 1.3880, drops 0.03% intraday, down for the fourth consecutive day, while heading into Wednesday’s London open. In doing so, the cable reacts to the US dollar’s latest pick ahead of the key Federal Reserve monetary policy meeting while extending the previous day’s losses piled by BOE Governor Andrew Bailey. Geopolitical risks surrounding China and Iran, not to forget the coronavirus (COVID-19) vaccine jitters and Brexit talks, are an extra burden on the quote.

UK foreign secretary Dominic Raab recently flashed indirect warnings to China and Iran over their human right dejection and nuclear rush respectively. In doing so, the Tory diplomat is likely to take American help and shows readiness to go beyond the international deal.

Elsewhere, the European Union’s (EU) envoy to the UK, Joao Vale de Almeida, said the BBC radio that the Northern Ireland (NI) protocol is a result of long and complex negotiations. I tend to say that the protocol is the solution and not the problem,” per Reuters. The diplomat further said, “Those who oppose the protocol today, they are not presenting any alternative because in fact there isn’t (one).” Earlier, US President Biden’s administration urged the EU and Britain to accept peace over the stretched issue.

Also weighing on the risks, and favoring the US dollar, could be the European countries’ sustained rejection of the AstraZeneca vaccine even as the UK Health Minister Matt Hancock said on Tuesday the COVID-19 vaccine produced by AstraZeneca remained safe and urged people to get vaccinated when they are invited to by the country’s health service, per Reuters.

Against this backdrop, stocks futures and Treasury yields are directionless but the US dollar index (DXY) prints a four-day winning streak by the press time.

It’s worth mentioning that BOE’s Bailey signaled the extreme need for stimulus while trying to reject the reflation fears the previous day. However, markets took it as the early sign of the BOE’s downward economic forecast and weighed down the GBP/USD prices.

Moving on, nothing matters more than US Federal Reserve Chairman Jerome Powell’s performance today. Herein, US dollar bulls will look for a reluctant acceptance of the reflation fears whereas taper talks should bolster the GBP/USD bears ahead of tomorrow’s key Bank of England (BOE) meeting.

Read: Federal Reserve Preview: The Good, the Bad and the Ugly edition, three critical things to watch

Technical analysis

Given the lack of overbought RSI conditions, not oversold as well, GBP/USD buyers are likely rushing towards a confluence of 21-day SMA and a descending trend line from February 24, currently around 1.3950. On the flip side, a six-week-long rising support line around 1.3855 becomes an immediate challenge to the GBP/USD sellers ahead of highlighting a 50-day SMA level of 1.3804 as the key short-term support.